What is check kiting?
Check kiting involves accounts at two or more financial institutions in which an account holder will deposit a check drawn on Financial Institution B into Financial Institution A. to cover the check at Financial Institution B, the person will deposit a check drawn on Financial Institution A (or a third institution) appearing as if the depositor has an
account balance at both institutions. In actuality, both account balances are uncollected and will
disappear when all the outstanding checks clear.
Is check kiting limited to checks alone?
No
Which other payment channels are used for check kiting?
ACH, wire, person-to-person (P2P) applications, and remote deposit capture
Who does the most check kitting?
Businesses
Why is it important to know the signs of check kitting and how to prevent it?
Knowing the signs of check kiting and how to prevent it can help you keep your financial institution safe from potential losses.
what are so red flags that might indicate check kiting?
*An account has a high velocity of deposit activity, often several deposits per day.
* An account has a volume of debits and credits inconsistent with the nature of the business of the
consumer involved.
* A high percentage of deposits come from accounts under the control of the consumer.
* The consumer has several accounts with similar names.
* The consumer requests balances and status of cleared items frequently.
* The consumer uses ATMs and different branch locations frequently for deposits.
* Frequent deposits occur right before the same day/next day availability cutoff window.
What are some mitigating tactics to prevent check kiting?
*Implementing Regulation CC
*Adhering to policies
*Utilizing dual control
What is regulation CC?
Regulation CC (CC hold) establishes a standardized hold period for different types
of deposits. By allowing financial institutions to hold funds for a certain number of business days
before making the funds available, it shrinks the window of opportunity for kiting schemes to exploit
float times. The most applicable exception hold types are large Items, new account, and reasonable
cause to doubt collectability.
how does adhering to the financial institution’s policies help avoid check kiting?
When financial institutions enforce policies that
prevent account holders from accessing funds from deposited checks until fully collected, it removes the opportunity for someone to withdraw money that doesn’t actually exist in their account. This is important for wire transfers and cashier’s checks; such items SHOULD ONLY be completed on COLLECTED FUNDS. Further, it is important that overdraft policies be enforced, as overdrafts may allow a
scheme to continue.
how does utilizing dual control help avoid check kiting?
Check kiting schemes often escalate rapidly when existing policies and procedures are bypassed without the knowledge of management. By implementing dual controls for policy overrides, the financial institution can ensure that any exceptions are properly reviewed and approved, keeping management informed and in control of critical decisions. This added layer of oversight helps prevent unchecked activity that could allow fraud to flourish.
